Exhibit (d)(7)
INTERNATIONAL CORE FUND
SUB-ADVISORY AGREEMENT
Sub-Advisory Agreement (the "Agreement") executed as of September 2,
2005 between XXXX XXXXXXX INVESTMENT MANAGEMENT SERVICES, LLC, a Delaware
limited liability company (the "Adviser"), and GRANTHAM, MAYO, VAN OTTERLOO &
CO. LLC, a Massachusetts limited liability company (the "Subadviser").
WHEREAS, the Adviser serves as investment adviser of the International
Core Fund (the "Fund"), a series of Xxxx Xxxxxxx Funds III (the "Trust"), a
Massachusetts business trust which has filed a registration statement under the
Investment Company Act of 1940, as amended (the "1940 Act") and the Securities
Act of 1933 (the "1933 Act"); and
WHEREAS, the Trust consists of several series, one of which is the
Fund; and
WHEREAS, the Adviser is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), and desires to avail itself of the
services, advice and assistance of the Subadviser to assist the Adviser in
providing investment advisory services to the Fund; and
WHEREAS, the Subadviser is registered under the Advisers Act, and is
engaged in the business of rendering investment advisory services to investment
companies and other institutional clients and desires to provide such services
to the Adviser;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER.
(a) Subject always to the control of the trustees of the Trust
(the "Trustees"), the Subadviser, at its expense, will furnish
continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the
purchase and sale of portfolio securities and all other investments.
The Subadviser will allocate all facilities and personnel necessary for
the conduct of its duties under this Agreement. In the performance of
its duties, the Subadviser will comply with (1) the provisions of the
Trust's Agreement and Declaration of Trust and By-laws, and the
investment objectives, policies and restrictions of the Fund as set
forth in its current Prospectus and Statement of Additional Information
(copies of which will be supplied to the Subadviser upon filing with
the SEC), and any amendments to such Agreement and Declaration of
Trust, By-laws, investment objectives, policies and restrictions which
the Trustees or the Adviser, as the case may be, may from time to time
determine, as promptly as practicable after such amendments have been
communicated to the Subadviser in writing, and (2) other policies which
the Trustees may from time to time determine, as promptly as
practicable after such policies have been communicated to the
Subadviser in writing. The Subadviser and the Adviser shall each make
its officers and employees and any information reasonably requested
available to the other from time to time at reasonable times to review
investment policies of the Fund, to facilitate the Adviser's monitoring
of the Subadviser, and to consult with each other regarding the
investment affairs of the Fund.
(b) The Subadviser shall bear its own expenses in providing
services pursuant to this Agreement, including salaries of its
personnel. The Subadviser shall not be obligated to pay any expenses of
the Adviser, the Trust or the Fund, including without limitation (i)
interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase and sale of securities and other
investment instruments of the Fund; and (iii) custodian fees and
expenses. The Subadviser shall not be obligated to pay any expenses of
or for the Fund not expressly assumed by the Subadviser pursuant to
this Section 1. Any reimbursement of management or other fees required
by an expense limitation or waiver provision, and any liability arising
out of a violation by the Adviser of Section 36(b) of the 1940 Act,
shall be the sole responsibility of the Adviser, provided that nothing
herein shall relieve the Subadviser from its own liability under
Section 36(b) of the 1940 Act with respect to its duties under this
Agreement.
(c) In the selection of brokers or dealers and the placing of
orders for the purchase and sale of portfolio investments for the Fund,
the Subadviser shall use its best efforts to obtain for the Fund the
most favorable price and execution available, except to the extent it
may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to
obtain for the Fund the most favorable price and execution available,
the Subadviser, bearing in mind the Fund's best interests at all times,
shall consider all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of
the transaction taking into account market prices and trends, the
execution capability, reputation, experience and financial stability of
the broker or dealer involved and the quality of service rendered by
the broker or dealer in other transactions. Subject to such policies as
the Trustees of the Trust may determine and communicate to the
Subadviser in writing, the Subadviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Fund to pay a
broker or dealer that provides brokerage and research services to the
Subadviser or its affiliates an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction, if the Subadviser determines in good faith that such
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the
Subadviser's overall responsibilities with respect to the Fund and to
other clients of the Subadviser and its affiliates as to which the
Subadviser or its affiliates exercise investment discretion.
(d) The Subadviser may execute Fund documentation, agreements,
contracts and other documents requested by brokers, dealers,
counterparties and other persons in connection with its providing
investment advisory services to the Fund.
(e) Nothing herein shall be considered as constituting the
Subadviser as an agent for the Adviser or the Fund or the Trust or as
anything other than an independent contractor with respect to the
Adviser or the Fund or the Trust.
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(f) The Subadviser makes no representation or warranty,
express or implied, that any level of performance or investment results
will be achieved by the Fund or that the Fund will perform comparably
with any standard, including other funds managed by the Subadviser.
(g) The Subadviser will provide such access to the
Subadviser's chief compliance officer and such compliance-related
information concerning the Subadviser's services to the Fund under this
Agreement as may reasonably be requested by the chief compliance
officer of the Adviser or of the Fund, as the case may be.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees,
officers and employees of the Trust may be a shareholder, member,
director, officer or employee of, or be otherwise interested in, the
Subadviser, and in any person controlled by or under common control
with the Subadviser, and that the Subadviser and any person controlled
by or under common control with the Subadviser may have an interest in
the Trust. It is also understood that this is a non-exclusive contract
for services, and that the Subadviser and persons controlled by or
under common control with the Subadviser have and may have advisory,
management service or other contracts with other organizations and
persons, and may have other interests and businesses. The Subadviser
may, by way of example and not by way of limitation, undertake to act
as investment adviser or subadviser for any investment company,
including without limitation other U.S. registered investment companies
with identical investment policies to the Fund. Nothing in this
paragraph is intended to negate or otherwise limit any existing or
future agreements between the Adviser and the Subadviser beyond this
Agreement that may have the effect of limiting (i) the organizations
and persons to which the Subadviser may provide investment advisory
services or (ii) the nature of the investment advisory services the
Subadviser may provide to other organizations and persons.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUBADVISER.
The Adviser will pay to the Subadviser the compensation
specified in Appendix A in return for the Subadviser's services
rendered hereunder.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF
THIS CONTRACT.
This Agreement shall automatically terminate, without the
payment of any penalty by the Fund, in the event of its assignment or
in the event that the Investment Management Contract between the
Adviser and the Trust shall have terminated for any reason; and this
Agreement shall not be amended unless such amendment is approved as
follows: (i) at a meeting by the affirmative vote of a majority of the
outstanding shares of the Fund, unless either (A) a determination is
made that shareholder approval is not required based on SEC guidance or
reliance on SEC staff interpretations or (B) pursuant to exemptive
relief no such approval is required; and (ii) by the vote, cast in
person at a meeting called for the purpose of voting on such approval,
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of a majority of the Trustees of the Trust who are not interested
persons of the Trust or of the Adviser or of the Subadviser; and (iii)
by both parties hereto.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall not become effective until such time
as it is fully executed by all parties hereto (the "Effective Date").
Subject to any early termination provisions below, this Agreement shall
continue in full force and effect as to the Fund for a period of five
years from the Effective Date.
(b) Notwithstanding the foregoing, if (i) the Trustees of the
Trust or the shareholders by the affirmative vote of a majority of the
outstanding shares of the Fund, and (ii) a majority of the Trustees of
the Trust who are not interested persons of the Trust or of the Adviser
or of the Subadviser, by vote cast in person at a meeting called for
the purpose of voting on such approval, do not specifically approve at
least annually the continuance of this Agreement, then this Agreement
shall automatically terminate at the close of business on the second
anniversary of the Effective Date, or upon the expiration of one year
from the effective date of the last such continuance, whichever is
later. This Agreement may continue in effect following the fifth
anniversary of the Effective Date only so long as such continuance is
approved in accordance with applicable law.
(c) Notwithstanding the foregoing, if the continuance of this
Agreement is submitted to the shareholders of the Fund for their
approval and such shareholders fail to approve such continuance of this
Agreement as provided herein, the Subadviser may continue to serve
hereunder in a manner consistent with the 1940 Act and the rules and
regulations thereunder.
(d) The Trust may at any time terminate this Agreement upon 60
days prior written notice delivered or mailed by registered mail,
postage prepaid, to the Adviser and the Subadviser. Action by the Trust
to effect such termination may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority
of the outstanding shares of the Fund.
(e) Either the Adviser or the Subadviser may at any time
terminate this Agreement by not less than 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the other
party and the Fund.
(f) Termination of this Agreement pursuant to this Section 5
shall be without the payment of any penalty by the Fund. Neither the
Adviser nor the Trust shall use or refer in any way to the name of the
Subadviser following the termination of this Agreement without the
Subadviser's consent, except as may be required by law.
6. CERTAIN INFORMATION.
The Subadviser shall promptly notify the Adviser in writing of
the occurrence of any of the following events: (a) the Subadviser shall
fail to be registered as an investment adviser under the Advisers Act
and under the laws of any jurisdiction in which the Subadviser is
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required to be registered as an investment adviser in order to perform
its obligations under this Agreement, (b) the Subadviser shall be
disqualified from serving as investment adviser to the Fund pursuant to
Section 9 of the 1940 Act, or otherwise, (c) the Subadviser shall have
been served or otherwise have notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court,
public board or body, involving the affairs of the Trust, (d) there is
a change in control of the Subadviser or any parent of the Subadviser
within the meaning of the 1940 Act, (e) there is a material adverse
change in the business or financial position of the Subadviser that
would materially affect the services provided by the Subadviser
hereunder, or (f) any person(s) primarily responsible for the
day-to-day management of the Fund's portfolio, if any, shall have
changed.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a
majority of the outstanding shares of the Fund" means the affirmative
vote, at a duly called and held meeting of shareholders, (a) of the
holders of 67% or more of the shares of the Fund, as the case may be,
present (in person or by proxy) and entitled to vote at such meeting,
if the holders of more than 50% of the outstanding shares of the Fund,
as the case may be, entitled to vote at such meeting are present in
person or by proxy, or (b) of the holders of more than 50% of the
outstanding shares of the Fund, as the case may be, entitled to vote at
such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated
person," "control," "interested person" and "assignment" shall have
their respective meanings defined in the 1940 Act and the rules and
regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act;
the term "specifically approve at least annually" shall be construed in
a manner consistent with the 1940 Act and the rules and regulations
thereunder; and the term "brokerage and research services" shall have
the meaning given in the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
8. NONLIABILITY OF SUBADVISER.
Notwithstanding any other provision of this Agreement, in the
absence of willful misconduct, bad faith or gross negligence on the
part of the Subadviser, or reckless disregard of its obligations and
duties hereunder, the Subadviser, including its officers, directors,
employees and members, shall not be subject to any liability to the
Adviser, to the Trust, to the Fund, or to any shareholder, officer,
director or Trustee thereof, for any act or omission in the course of,
or connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust or
the Adviser, the Subadviser shall at its discretion exercise or procure
the exercise of any voting right attaching to investments of the Fund.
The Adviser agrees and acknowledges that the Subadviser shall not be
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obligated to take any action with respect to any class action
proceedings or other legal action concerning securities held in the
Fund's portfolio, except to forward to the Adviser in a timely fashion
any notice of such an action that the Subadviser may receive.
10. REPORTS.
During the term of this Agreement, the Adviser agrees to use
its best efforts (a) to furnish to the Subadviser, at a reasonable time
prior to the use thereof, all prospectuses (as described in Section
10(a) of the Securities Act of 1933, as amended (the "1933 Act")),
proxy statements, reports to shareholders, sales literature or other
material relating to the Trust which describe the Subadviser or its
ownership, business or investment processes in any way that is
materially different from the "Agreed Disclosure" (which for this
purpose means either (i) the prospectus (including any prospectus
supplement) or (ii) the most recent amendment to the Trust's
registration statement under the 1933 Act depending on whether, on the
relevant date, the prospectus or the amendment was more recently filed
with the SEC) and (b) not to use any such material (to the extent it
relates to the Subadviser) if the Subadviser objects in writing that
the description of the Subadviser or its ownership, business or
investment process is materially misleading or inaccurate.
11. CONSULTATION WITH SUBADVISERS.
In order to allow the Trust and the parties hereto to take
advantage of the safe harbor under Rule 17a-10 under the 1940 Act, the
Subadviser is prohibited from consulting with the entities listed below
concerning transactions for the Fund in securities or other assets:
1. other subadvisers to the Fund 2. other subadvisers to a
series of the Trust 3. other subadvisers to a fund under
common control with the Fund
12. MISCELLANEOUS.
(a) Any information and advice furnished by either party to
this Agreement to the other shall be treated as confidential and shall
not be disclosed to third parties without the consent of the other
party hereto except as required by applicable law, rule or regulation.
(b) This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
(c) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
(d) The Agreement and Declaration of Trust of the Trust, a
copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The
Commonwealth of Massachusetts, provides that the name of the Trust
refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and no Trustee, shareholder,
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officer, employee or agent of the Trust shall be held to any personal
liability, nor shall resort be had to their private property, for the
satisfaction of any obligation or claim, in connection with the affairs
of the Trust or any series thereof (including the Fund), but only the
assets belonging to the Trust, or to the Fund or other particular
series of the Trust with respect to which such obligation or claim
arose, shall be liable.
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In Witness Whereof, XXXX XXXXXXX INVESTMENT MANAGEMENT SERVICES, LLC
and GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC have each caused this instrument to
be signed in duplicate on its behalf by its duly authorized representative, all
as of the day and year first above written.
XXXX XXXXXXX INVESTMENT MANAGEMENT
SERVICES, LLC
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Title: Executive Vice President
GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Title:
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Title:
Accepted and agreed to as of the day and year first above written:
XXXX XXXXXXX FUNDS III,
on behalf of its
International Core Fund
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------
Title: President
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APPENDIX A
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The Subadviser shall serve as investment subadviser for the Fund. The
Adviser will pay the Subadviser, as full compensation for all services provided
under this Agreement, the fee computed as indicated below.
1. For purposes of calculating the fee to be paid to the Subadviser
under this Agreement:
"Fund Assets" shall mean the net assets of the Fund managed by
the Subadviser for which the fee is being calculated;
"Other Assets" shall mean the net assets of the portion of
assets managed by the Subadviser of the accounts listed in the table
under Item 3 below;
"Combined Assets" shall mean the sum of Fund Assets and Other
Assets; and
"Daily Fund Net Assets" shall mean the net asset value of the
Fund Assets as of the end of each day.
"Daily Combined Net Assets" shall mean the net asset value of
the Combined Assets as of the end of each day.
2. The Subadviser's fee shall be calculated and accrued daily based
upon the Daily Fund Net Assets and the sum of the daily fee accruals shall be
paid monthly in arrears (within 10 days of receipt by the Adviser of an invoice
from the Subadviser). The fee accrued each calendar day shall be calculated by
applying the Applicable Rate, as determined in accordance with Item 4 below, to
the Daily Fund Net Assets, and dividing by 365 (366 in a leap year).
3. The following table shall be used to determine the Other Assets that
correspond to the Fund:
NAMES OF ACCOUNTS USED TO CALCULATE "OTHER ASSETS"
--------------------------------------------------
International Stock Trust, a series of Xxxx Xxxxxxx Trust;
International Stock Fund, a series of Xxxx Xxxxxxx Funds II
4. The following fee schedule shall be used to determine the Applicable
Rate used in calculating the fee to be paid to the Subadviser under this
Agreement, in each case based on the Daily Combined Net Assets as indicated.
SECOND TRANCHE: THIRD TRANCHE:
FIRST TRANCHE: DAILY COMBINED NET ASSETS IN DAILY COMBINED NET ASSETS
DAILY COMBINED NET ASSETS EXCESS OF $100,000,000 IN EXCESS OF
NAME OF FUND UP TO $100,000,000 AND UP TO $1,000,000,000 $1,000,000,000
------------ ------------------ ------------------------ --------------
International Core Fund 0.47% 0.445% 0.43%
The "Applicable Rate" is equal to the quotient of (a) the sum of the products of
the percentage and the dollar amount of the portion of Daily Combined Net Assets
in each respective tranche, divided by (b) the total amount of Daily Combined
Net Assets. For example, if Daily Combined Net Assets were $2,000,000,000, the
Applicable Rate would be (($100,000,000 * 0.47%) + ($900,000,000 * 0.445%) +
($1,000,000,000 * 0.43 %)) / $2,000,000,000 = ($470,000 + $4.005m + $4.3m) /
$2,000m = 0.439%.
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